Canada Pre-Construction Home Tax Guide
the pre-construction (the "pre-con") home taxation in Canada. The HST on the pre-construction condos — the HST at 13% (Ontario), 15% (NS, NB, NL, PEI), 5% (Alberta, BC, SK, MB, NT, NU, YT) applies to the new construction homes. The GST/HST New Housing Rebate is available for the pre-construction purchasers who intend to occupy the home as the principal residence (up to $6,300 for the federal GST portion and up to $24,000 for the Ontario HST portion). The assignment sale (the "pre-construction flipping" — the original buyer assigns the purchase contract to the new buyer before the closing) has the significant tax implications — the assignment profit is subject to the HST (the 13% in Ontario) and is taxed as the income (the "business income" from the "adventure in the nature of the trade"). The flipping rules (the 2022 Federal Budget) impose the 100% taxation (the "full inclusion" — the anti-flipping rules) on the gains from the sale of the residential property held for less than 12 months (the "residential property flipping rule" — the gain is treated as the business income, not the capital gain). The Tarion warranty (the Ontario New Home Warranty Program) protects the pre-construction buyers.
HST on Pre-Construction Condos
- New construction HST: The HST at 13% (Ontario) or 15% (Atlantic HST provinces) applies to the new construction homes (the "newly constructed" or the "substantially renovated" homes). The HST is paid by the purchaser on the closing (the "HST on the closing cost" — the builder charges the HST on the purchase price). The "HST-included" pricing (the "all-in price" — the builder includes the HST in the advertised price) is common in the Ontario pre-construction market.
- GST/HST New Housing Rebate: The purchaser can claim the rebate of a portion of the HST (the "owner-occupied" rebate — up to $6,300 federal + up to $24,000 Ontario) if the condo is the principal residence. The builder may assign the rebate to the purchaser (the "builder-assigned rebate" — the builder reduces the closing cost by the rebate amount).
- Rental rebate: The purchaser who plans to rent the condo (the "investor" — the landlord) can claim the GST/HST New Residential Rental Property Rebate (the "rental rebate" — the rebate for the new rental property).
Assignment Sales
- Assignment profit: The original buyer (the "assignor") assigns the pre-construction purchase contract to the new buyer (the "assignee") before the closing. The assignor receives the "assignment commission" (the difference between the original purchase price and the assignment price). The assignment profit is subject to the HST (the 13% in Ontario) and is taxed as the business income (the "income from the sale of the property").
- HST on the assignment: The builder charges the HST on the assignment commission (the "assignment HST" — the 13% on the assignment fee). The assignor must register for the GST/HST if the assignment profit exceeds $30,000 in the year (the "small supplier" threshold).
- Flipping rules (12-month rule): The 2022 Federal Budget introduced the "anti-flipping rules" — the gain from the sale of the residential property (including the assignment) held for less than 12 months is treated as the business income (the "100% inclusion" — the "full taxation" at the marginal rate). The principal residence exemption does NOT apply to the flipped properties (the property that is held for less than 12 months).
Pre-Construction Buyer Protections
- Tarion warranty: The Ontario New Home Warranty Program (the "Tarion Warranty") covers the new construction homes (the condos and the freeholds) for the 1-year workmanship and materials, the 2-year building envelope, and the 7-year major structural defect. The Tarion is the mandatory warranty for the new homes in Ontario.
- Cooling-off period: The Ontario pre-construction purchasers have the 10-day cooling-off period (the "rescission period" — the buyer can cancel the contract within 10 days of the signing). The BC and the Alberta pre-construction purchasers have the 7-day cooling-off period.
- Delayed closing: The pre-construction closing can be delayed by the builder (the "delayed occupancy" — the "interim occupancy" period in Ontario). The purchaser pays the "interim occupancy fees" (the "phantom rent" — the estimated rent for the period between the building occupancy and the condo registration).
For the GST/HST New Housing Rebate and the application process, see our GST/HST New Housing Rebate Guide →. For the first-time home buyer programs and the land transfer tax rebates, see our First-Time Home Buyer Guide →.